Teladoc
Health, Inc (TDOC, $157.33): “Is Recent Outperformance TELLing Us it’s Time to
Sell? ”
By:
Nick Shotkoski, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Teladoc Health, Inc. (NYSE:TDOC) provides virtual care technology
solutions to hospitals and health systems allowing for mobile access to
physicians for a wide range of conditions varying from mild infections to more severe
conditions such as cancer.
• In light of the recent
Covid-19 outbreak, Teladoc’s technology is garnering a great deal of interest
due to its ability to help play a role in preventing the spread of the disease
by allowing patients with less severe symptoms to receive treatment without
unnecessary trips to the hospital.
• Teladoc’s technology
also helps to free up capacity in the health system by allowing patients to
receive medical care from their home instead of unnecessarily taking up
capacity at a hospital.
•Due to this potential in
facilitating social distancing, Teladoc’s stock is up an impressive 87.92% year
to date, noticeably outperforming the broader market.
• While this Covid-19
outbreak shows the immense potential of Teladoc’s products, the company still
has yet to turn a profit and trades at a Price/Sales multiple around 20x,
hinting it may be a good time to trim the position.
Key
points:
The recent Covid-19
crisis has been a defining event for Teladoc. Teladoc’s telehealth platform has
become extremely valuable due to its ability to allow physicians to meet with
patients from within the comfort of their homes. This prevents the spread of
the virus by allowing patients and physicians to avoid unnecessary contact in
the high density environment of a hospital. This also frees up capacity in the
healthcare system by allowing physicians to meet with patients and not have to
use protective masks and other medical supplies that are in critical demand at
the moment.
The utility of Teladoc’s
products in this crisis is beginning to flow through to the company’s financial
performance. Since the beginning of March, Teladoc has seen daily medical
visits on its platform double to more than 20,000 per day. As a result, the
company was also able to raise guidance from 170 million to over 180 million
for the first quarter 2020. Of this rapid growth in users, the company stated
that 60% is due to new user growth. This places Teladoc in a position to
capitalize on a growing customer base well beyond the Covid-19 crisis if they
can retain some of these new customers going forward. Clearly, the company has
a great product that is well suited for the current health crisis.
Wall Street and investors
across the country have taken notice in the company’s potential to see a surge
in growth as a result of the Covid-19 outbreak. The stock began the year
trading at $83.72 and has risen all the way to $157.33 as of yesterday’s close.
In this time frame, the company’s Price to Sales ratio has ballooned from ~11x
to more than 20x last twelve month sales. And while the company has seen sales
grow at an enticing 66.3% CAGR over the past five years, it has never turned an
operating profit for a single quarter and is not projected to have positive EPS
until 2023.
The company will need to
find a way to retain customers and medical visit volume beyond the current
healthcare crisis. While physicians and patients have flocked to the company
out of necessity, this may not be the case once the current health crisis
passes and stay at home orders are lifted. It is simply too soon to
definitively say whether or not this unprecedented growth can be retained beyond
the crisis. If the company is unable to capture the growing number of users
beyond the Covid-19 scare, it is difficult to justify these valuation multiples
given the company’s lack of profitability.
What
has the stock done lately?
Since the beginning of
March, Teladoc’s stock is up an impressive 26.38%. The stock briefly traded
above $170.00 in late March but has since settled around the $150-160 range.
This high performance has been paired with high trading volume as well. This performance is primarily due to
increased daily medical visits on the company’s platform leading to higher
expected revenue in the current quarter and near future.
Past
Year Performance:
TDOC has increased in
price by 191.19% over the past year, well surpassing the returns of the broader
market. This is primarily driven by increased adoption of the company’s
platform and solid revenue growth of 32.4% for 2019.
1 Year Stock Chart vs. Benchmark from FactSet
Source: Factset
My
Takeaway
It is undeniable that
Teladoc has a great product that is well positioned to aid the fight to flatten
the curve and spread of the Coronavirus. However, at a current valuation
multiple of 20x last twelve months sales, I believe the current stock price is
a little too frothy. The company has turned into a ‘show-me’ story and must
prove that they can obtain profitability and retain customers beyond the
current unprecedented times. For these reasons, I think it is time to take some
profits off the table and trim the position.
1 Month Stock Chart from FactSet here
Source:
FactSet
